One of President Obama’s proposed financial reforms would require employers that do not offer a 401(k) to automatically enroll their employees into an IRA. If implemented, it would give the biggest boost to the retirement savings industry since the creation of the 401(k) in 1980, enrolling 40 million new investors, and attract more than $100 billion within five years, The Wall Street Journal reports.
It would require companies with 10 or more workers that have been in business for at least two years to participate. It would deduct 3% of workers’ salaries and invest it very conservatively, in inflation-indexed savings bonds, money market mutual funds or stable value funds. Once the portfolio reaches $3,000, it would be moved over to a target-date fund.
Experts estimate that it would cover 40 million of the 75 million Americans who do not have access to a 401(k) or other defined contribution plan. Naturally, they applaud the retirement protection the measure would offer, but they fear that small businesses could balk at the cost of having to hire a payroll service or accountant to manage the IRAs. Others criticize the plan for not investing the money aggressively enough.
